Mayor Silent On U.S. Offer Of Loan Aid

By Lawrence FeinbergBy Lawrence FeinbergJanuary 12, 1977

A federal offer to help revive Washington's low-interest, college student loan program has gone unanswered by the city government for the past three weeks while about 1,500 students seeking loans still don't have money for the spring term.

D.C. banks stopped making the loans last summer when defaults topped $2 million and the city government failed to honor its guaranty agreement to cover them.

On Dec. 20, the U.S Office of Education wroter Mayor Walter Washington, offering direct federal guarantees to encourage banks to make new loans. But as of late yesterday, federal officials said, they still had not been able to arrange a meeting with either the mayor or his subordinates to discuss the offer.

"Whenever we call, a secretary says they're in meetings," said Kenneth Kohl, director of the federal office of guaranteed student loans, "or we leave messages and we don't get hold of them."

Meanwhile, Kohl said he had asked auditors for the Department of Health, Education and Welfare to investigae how the D.C. guaranteed loan program has been operating and how it reached a default rate of 30 percent, about three times higher than the nationwide average.

Kohl said a four-day review by his staff in November indicated "very serious problems" in the D.C. student loan office, with incomplete records and apparently very little effort to collect from students who don't repay their loans.

At Mayor Washington's direction, the D.C. Office of Municipal Audit and Inspection also is investigating the D.C. student loan operation, which comes under the control of the Department of Human Resources.

Yesterday Eloise Turner, director of the D.C. student loan office, said she hadn't been told yet of the federal offer to help revive the program.

A spokesman for Mayor Washington said the letter from the U.S. Office of Education had been sent by the mayor's office to budget director Comer Coppie, and that Coppie has sent it to the municipal audit office.

She said the letter still hadn't reached anyone in the Department of Human Resources, but that an assistant to acting DHR director Albert Russo spoke on the telephone yesterday with an assistant in Kohl's office, and that they are trying to set up a meeting within two weeks.

"We don't want to impose our program on the District," said Robert F. Carmody, a deputy director of the federal student loan office. "But all they have to do is say O.K. and we could be in there tomorrow and start providing student loans again."

Under the suspended program, the District gets back from the federal government 80 per cent of the money it pays to the banks to cover defaults. But that bill now amounts to almost $2.5 million, and the city has only $700,000 in a reserve fund to take care of it. The District must pay the money to the banks before it can be reimbursed.

Under the direct federal insurance program, the federal government would deal directly with banks and would guarantee any new student loans they make at a rate of 100 per cent.

Since the students getting the loans have to be D.C. residents, and each year can borrow up to $1,000 for undergraduate studies and $1,500 for graduate work. The interest rate is 7 per cent a year, about 4 per cent less than consumer loans, and repayment does not have to start until nine months after students graduate or drop out of school.

Yesterday Mrs. Turner, who took charge of the D.C. student loan office last May, acknowledged that the program has had serious problems.

"There's a great deal I'm trying to get on top of," she said. "We welcome the audit. They can only help us to straighten out the situation the program is in."

She added, "We are making an effort to collect from students," but said that since June her office had received only $4,522 from them in repayments of defaulted loans. To date, she said, the District governemnt has not filed lawsuits against students who don't repay their loans.